Is it compulsory? Absolutely not. In fact, not every lender even offers pre-approval.
But here's the thing: walking into an open home with a formal pre-approval and a deposit ready to go shows the seller that you are a serious buyer. If you make an offer, it could give you a better chance of having the offer accepted over other buyers, who may not be as organised with finance.
Pre-approval is a formal document prepared by a lender. It's an indication of how much money a lender is willing to lend you for a home loan. It's sometimes called conditional approval, or approval-in-principle.
It gives you an idea of how much a lender is willing to lend you, and it's also very useful if you're buying a property at auction, because it gives you a firm upper limit to your bidding.
So how does it actually work? Pre-approval requires a brief application, typically online (although some lenders require an in-person consultation) involving some identification and financial information.
A home loan pre-approval is not the same as being approved for an actual mortgage. It is possible to get pre-approved by a lender, only to be rejected at the actual application stage – but this is only likely to happen if your situation substantially changes in between, like you change jobs and your income declines.
Pre-approval brings a number of benefits:
Get a free credit score check before you apply for a home loan
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| In a branch | 51.24% | 51.16% | 56.99% | 49.77% | 49.85% |
| Online | 34.71% | 36.63% | 29.03% | 38.25% | 34.25% |
| Other | 9.09% | 5.94% | 9.68% | 5.99% | 5.2% |
| Over the phone | 4.13% | 3.63% | 3.23% | 5.07% | 6.42% |
| Via an app | 0.83% | 2.64% | 1.08% | 0.92% | 4.28% |
Once you apply, if the lender is satisfied that you meet their lending criteria, the lender will grant you conditional pre-approval to borrow up to a certain amount. Most lenders will issue you a pre-approval that lasts 3 months or 90 days. This gives you time to hunt for properties and get your actual application together. The expiry date is usually listed on your pre-approval letter, and once this date lands, you'll need to apply for pre-approval again.
"A pre-approval is designed to give you confidence that you can get the finance for your purchase. This pre-approval is usually valid for 90 days, which can be extended with some updated documents."
Not all lenders offer pre-approval, but here's a list of some who do:
Follow these steps to get your mortgage pre-approval:
Every pre-approval is recorded on your credit file as a hard credit enquiry. Generally, having these hard enquiries won't negatively affect the score by much, but banks do start to get a little uncomfortable if you apply for multiple home loans in a short amount of time.
When the lender checks your credit score, your pre-approval application will show up as a hard enquiry. For instance, it will show:
In the past, lenders did not know whether applicants had been approved or declined for credit (they couldn't see the outcome of the enquiry – just that there was an enquiry). They would just assume that an applicant had been declined, as this would explain why they had applied for multiple pre-approvals.
Today, the information about credit approvals and rejection is being collected and displayed in credit files, which gives lenders a clearer idea of the total amount of debt you're carrying. That said, applying for multiple mortgage pre-approvals can still give off red flags to lenders.
"There isn't any real risk or dangers in doing multiple pre-approvals, other than having another enquiry on your credit file, which you want to limit. I don't see the benefits in doing multiple pre-approvals. If there is a better offer with another bank at the time of you finding a property, you can then apply with that bank, so I wouldn't apply for multiple pre-approvals – instead, re-run your research at the time of you locking in a property.."
With many lenders offering online pre-approval, the whole process of applying can take as little as a few hours. Receiving your pre-approval from the lender, however, usually takes a few business days and during very busy times, it can take weeks.
Online pre-approval is usually a system-generated process that is very quick, but it doesn't involve a qualified credit assessor reviewing your pre-approval application. Some lenders may offer this, while others may require a fuller assessment that involves a lender's credit department.
While the process can be fast, getting an official letter of pre-approval from your lender may take days, if not weeks, depending on how busy the lender is. During the Covid pandemic in 2020, some lenders took up to 3 months to process a pre-approval.
Once you find a property to buy, you need to get full or unconditional approval. This requires a more detailed application. Then you need to provide a contract of sale and the lender must conduct a valuation of the property and be satisfied that you haven't paid too much for the property
Once your application is approved it's time to draw up the loan documents. You’ll need to read your loan contract carefully before signing, and your lender will check that you’ve filled out everything correctly.
Your conveyancer or solicitor can then review the contract of sale, before you and the seller can sign a copy. Once a settlement date has been arranged, your lender will provide confirmation of your loan details. This is also the time at which you can expect to be charged for stamp duty and registration costs.
At settlement the property is yours and it’s time to start paying off your loan.
When you apply for a home loan, a lender will take many serviceability factors into consideration when deciding whether or not to approve your application.
When you apply for a home loan, the lender will assess a range of factors to determine whether or not you can afford to repay the money you borrow.
Here are loads of expert tips to help you borrow what you need for your home or investment property, without breaking the bank.
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Learn why your lender may request a certificate of currency to advance your home loan and how much it could cost you.
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need apply for motgage
Hi Nyasha,
We do not offer home loans but if you are looking for options, you can check our comparison table. Once you’ve chosen a particular loan, click the Go to site icon. You’ll be directed to the lender’s website where you can start your application.
I hope this helps.
Cheers,
Richard
Can you opt out of getting a loan after you have filled out all the paperwork for the loan and have been given a verbal that the loan is pre-approved subject to the lender (St George) evaluating all the paperwork and doing a valuation of the property in question?
Hi Julie,
thanks for the question.
Home loan pre-approval is in many cases obligation-free, meaning that you can cancel it if you no longer require it or have found a better deal. The exact nature of a pre-approval agreement differs on a case-by-case basis depending on the lender, so I would recommend contacting St.George directly to find out if you can opt out.
I hope this helps,
Marc.